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2019 H2 Newsletter

Read our latest newsletter, in which we explore some of the key challenges and opportunities corporates are facing internationally.

Welcome to our latest edition of our International Corporates newsletter.

It was a pleasure to meet a number of you at New Frontiers this November. It’s fair to say that international volatility continues to present itself as a pertinent topic, with trade wars, geo-political tensions and the impact of a global slowdown bringing uncertainty to both corporates and the markets in which they operate.

Despite this, we’re seeing that corporates are showing resilience and driving efficiencies through their businesses, treasury and working capital management, as well as showing early signs of opportunistic cross-border acquisitions.

As the market faces disruption, new technological and sustainability initiatives are emerging, and innovative solutions are coming to the fore. We remain committed to working with you to help business continuity and growth. We’re continuing to streamline and invest in our digital platforms, including our European banking platform, as we aim to connect your business with the opportunities that an international banking partner like Barclays can bring.

Thank you.

Pushkaraj Gumaste
Managing Director, Head of International Corporates

  • Global trade opportunities

    How are countries adapting their trade strategies amid a changing global landscape?

    The history of trade has long been defined by change, tension and uncertainty; however, today we are living through a period of particular flux. All around the world, trading relationships are being realigned in response to major geopolitical events, such as Brexit and the US-China trade war.

    Inevitably, this realignment has created both losers and winners. In 2019, the US-China trade war has hampered the economic growth of China and more advanced Asian economies, such as Hong Kong and Singapore. On the other hand, it has created opportunities for developing economies^, such as Vietnam and Bangladesh, and proved a boon for Brazilian soybean producers, who have been exporting heavily to China.

    So, given current developments and trends, how are countries likely to adapt their trading strategies in future?

    The UK: Post-Brexit trade opportunities

    Assuming that Brexit goes ahead, the UK will need to sign new trade agreements since it will no longer be covered by the existing trade deals that have been signed by the European Union (EU). The UK government is in the process of agreeing continuity agreements so that the benefits of the EU’s free trade deals with other countries will continue to apply post-Brexit.

    Once Brexit has happened, the UK will also be free to sign trade deals with countries where the EU does not currently have a trade agreement in place, such as the US. It is likely to pursue strong trading relationships with Australia and New Zealand, as well as with fast-growing Asian countries, including China. Although the UK will be able to trade freely with any country once it has left the EU, it will need to trade under World Trade Organisation rules in situations where there is no trade deal in place.

    Another important trade agreement that the UK will need to sign is a deal with the EU. The EU is currently the UK’s largest trade partner^ and comprises around half of the country’s trade. Under the terms of Boris Johnson’s proposed withdrawal agreement, the UK and EU will work towards a free trade agreement in future. The issue of whether the withdrawal agreement is finally passed by parliament will depend on the outcome of the UK general election, which takes place on 12 December.

    Europe: Broadening trade relations

    The EU has around 40 free trade deals in place, covering more than 70 countries^. Two of its most significant deals in recent years have been the agreements that it signed with Canada and Japan. The Comprehensive Economic and Trade Agreement^ cuts tariffs and makes it easier for the EU and Canada to export goods and services to each other. Meanwhile, the Economic Partnership Agreement with Japan effectively creates the largest open trade zone in the world. The EU is also currently in the process of negotiating agreements with Australia^ and New Zealand^ and has ‘an agreement in principle’ with Mexico^. Recently, trade tensions have emerged between the EU and the US, with both jurisdictions imposing higher tariffs on imports from the other.

    A particular trade focus for the EU at present is China since China is the EU's second-biggest trading partner behind the US^, while the EU is China's biggest trading partner. On average, China and Europe trade over €1 billion per day. In 2013, the EU and China launched negotiations for an investment agreement, with the aim being to provide both sides with predictable long-term access to the EU and the Chinese markets while protecting investors and their investments. At present, however, China’s attention is firmly on the US when it comes to trade negotiations and it is less engaged with the EU.

    US: Beyond the trade war with China

    The US-China trade war has undermined global growth. In October, the International Monetary Fund cut its global growth forecast for 2019 to 3%, down from 3.5% at the start of the year^ citing rising trade barriers and increasing geopolitical tensions. It also estimated that US-China tensions would “cumulatively reduce the level of global GDP by 0.8% by 2020”. With both the US and China feeling the economic impact of the trade war, there is now talk of an imminent truce, which could lead to a de-escalation of the conflict.

    While the US has been following protectionist policies with China, it has still shown willing to develop stronger trading relationships with other partners. The US House of Representatives is close to approving the trade agreement that President Trump negotiated with Canada and Mexico^. In addition, the president is keen for the UK to sign a trade deal with the UK post Brexit. He has also said that he will pursue a free trade agreement with Brazil, which could help to lower trade barriers between the two biggest economies in the Americas.

    Asia: Comprehensive and Progressive Agreement for Trans-Pacific Partnership

    In the Asia-Pacific region, a number of countries are adopting mutually beneficial trade liberalisation measures. This is because they want to buffer their economies from the fall-out of the US-China trade war and the rise of protectionism in other markets.

    The Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which became effective in December 2018, is a trade agreement between 11 countries – including Australia, Canada, Japan, Malaysia, Singapore and Vietnam. Between them, these countries represent half a billion people and 14% of the global economy. The agreement has reduced or eliminated tariffs for member markets, liberalised the rules around the trade of goods and services, and opened up these markets to more foreign investment.

    How Barclays can help

    The redrawing of the global trade landscape creates risks and opportunities that businesses will need to manage. In particular, higher tariffs and free trade agreements can lead companies to start sourcing raw materials, goods and suppliers from markets that they have not previously used before, potentially at a cheaper price. Companies may also actively seek out customers in new markets for their goods and services.

    Trade finance solutions can play an important role in helping importers and exporters to mitigate risk, ensure payment security and make maximum use of their working capital. Some of the most commonly used trade solutions include bonds, guarantees and indemnities; letters of credit; trade loans; and trade collections^.

    We offer a comprehensive suite of trade finance solutions that enable our clients to buy and sell with confidence. Our trade and working capital team is also able to draw on its extensive experience in international trade to support our clients when entering new trading partnerships and markets.

    To find out more about how Barclays’ trade and working capital team can support your international trade ambitions, contact your relationship director.

    Andres Baltar
    Head of ICB Europe

    Alexander Harrison
    Head of Corporate Banking, Asia Pacific and Middle East

    Keith Mackie
    Head of International Corporate Banking, Americas

    Simon Ollerenshaw
    Managing Director, Head of UK & Swiss Multinational Coverage

  • Optimising the treasury function

    Fit for 2020: Restructuring the treasury function to optimise the cash position of the business

    A well-organised treasury function can be a competitive advantage for corporates when it comes to navigating today’s fast-moving environment. Not only does an efficient treasury enable a business to make optimal use of its liquidity and working capital, it can help the business to secure funding on advantageous terms, and provide valuable insight that allows the business to react quickly to changing conditions.

    Yet many treasuries are not as efficient and effective as they could be. Often this is because the evolution of the treasury reflects the evolution of the business itself. When a corporate expands at a rapid rate, either organically or through mergers and acquisitions (M&A), its treasury team can end up spread across multiple geographical locations, with different members of the team using different legacy financial systems to manage numerous bank accounts.

    Typically, the decision to restructure a treasury is sparked by a significant corporate event, such as a major organisational redesign or a large M&A transaction. This is because these events present corporate treasurers with opportunities to reconsider their existing processes and systems, and to potentially transform their treasury set-up.

    Where to start

    Usually, restructuring will aim to improve the agility of the treasury function so that it can act quickly to optimise the cash position of the business. For this to happen, individual treasury centres need to be fully integrated within the broader treasury operation. State-of-the-art technology can be used to give every member of the treasury function real-time visibility across all the business’s bank accounts. Not only does this support the centralisation of cash management activities, it also enables staff in different treasury centres to better support each other.

    Restructuring also tends to entail bank account rationalisation, improved cashflow forecasting tools and streamlined processes for sweeping balances, opening or closing bank accounts, and connecting to financial institutions. Furthermore, optimal treasury performance may only be achieved if the restructuring includes the automation of routine tasks, such as bank account reconciliation. Greater use of automation can free up treasurers’ time to focus on the ‘value-add’ areas of their work, such as risk management and the generation of higher returns on excess cash.

    Finally, restructuring needs to reflect the financing requirements of the business going forward. Is the treasury function structured so that team members have sufficient time and capacity to build strong relationships with key banking partners?

    M&A and treasury restructuring

    Some specific considerations apply when treasury restructuring is undertaken in the context of M&A. Once a corporate has taken the strategic decision to sell or buy a business, treasury needs to ensure that the newly sold or acquired business is able to run efficiently from a financial point of view. So, there is usually a requirement to create a new treasury set-up with defined responsibilities. For example, the new treasury might be responsible for investor relations and tax, as well as the more traditional domains of cash management, funding, risk management and trade finance. Policies and procedures will inevitably be required. Also, banking relationships will need to be established, with account and dealing mandates put in place. It may be necessary to establish a new revolving credit facility for the entity and potentially other borrowing capabilities.

    Furthermore, if an acquired business is based in a region that is unfamiliar to the parent company, corporate treasurers will need to invest time in building relationships with local experts on the ground – particularly banks and law firms. They should also look at how they can integrate the treasury centre of the newly acquired business into the broader treasury function – for example, it might be necessary to roll out new technology or to merge it with an existing centre.

    Three focus areas

    Regardless of whether treasury restructuring takes place within the context of an organisational redesign, an M&A event, or simply in isolation, what are the three main areas that corporate treasurers need to focus on?

    1. Strategy. Corporate treasurers need to understand the objectives of the business and how it intends to achieve them. Is it moving towards a highly centralised organisational structure, for example, or does it still plan to maintain a strong operating presence in different regions? Will the business have heavy FX requirements or be subject to complex new regulation going forward? If treasurers have this strategic understanding of their business, they will be able to structure their treasuries accordingly and elicit the most appropriate advice from their banking partners and technology vendors.
        
    2. Talent. An effective treasury has the right people, with the right skills and networks, in the right places. In this way, it can make optimum use of the business’s cash and liquidity, manage risk and establish appropriate financing structures. Therefore, any restructuring of treasury should involve the introduction of processes and tools that enable team members to collaborate more effectively with one another and with their external partners.
        
    3. Opportunities to drive efficiencies. Today, inefficiency is a problem for many treasuries because it increases cost and hampers their ability to react to changing circumstances. Driving efficiencies is therefore a crucial part of restructuring. Efficiencies can be achieved in numerous ways including bank account rationalisation, streamlined processes, centralised technological systems and automation software. 

    How Barclays can help

    As a trusted provider of corporate banking services, Barclays is well placed to support corporate treasurers on how they can redesign their treasury set-up. We can help our clients to develop a treasury model that suits their purposes, as well as a capital structure that is in line with their long-term strategic objectives. In addition, we offer a comprehensive suite of banking products and solutions that can be tailored according to our clients’ financing and liquidity needs.

    To find out more about how Barclays’ corporate banking services can support your treasury restructuring, contact your relationship director.

    Andres Baltar
    Head of ICB Europe

    Alexander Harrison
    Head of Corporate Banking, Asia Pacific and Middle East

    Keith Mackie
    Head of International Corporate Banking, Americas

    Simon Ollerenshaw
    Managing Director, Head of UK & Swiss Multinational Coverage

  • Evolving technology

    How is technology transforming the global payments and treasury environment?

    The global payments landscape is undergoing a period of profound change as digital channels are increasingly used for payments, by both businesses and consumers. China is on its way to becoming a cashless society, while the use of cash has significantly declined in a number of countries including Canada, Sweden and the UK. In fact, a report by Mordor Intelligence^ predicts that the global digital payments market will be worth US$7.64 trillion by 2024. 

    For corporate treasurers, the rise of digital payments presents many benefits. They can send and receive payments quicker than ever before, potentially in real time, which allows them to better manage their organisation’s cashflow. They are also able to use digital platforms and tools to track the progress of payments and to connect directly with their banks. 

    Security is an important consideration with digital payments. Nevertheless, when appropriate controls are in place, digital channels are a better means than either cash or cheques for ensuring that the right payment reaches the right recipient, at the right time.

    So, what are the main trends that we are seeing in digital payments around the world today and how are these impacting on corporates?

    UK: Real-time payments

    The UK’s Faster Payments Scheme has been so successful that by 2018, the 10th anniversary of its launch, it had been used to send over 9 billion payments^, with a combined value of more than £6 trillion. Initially the transaction limit for individual payments sent by Faster Payments was £10,000. It is now £250,000, meaning that it will cover a large proportion of all sterling payments that need to be settled.

    While real-time payments were initially designed with consumers’ needs in mind, they have become an increasingly practical solution for corporates. Their usefulness will grow further as transaction limits increase in future. 

    An obvious benefit of real-time payments is that companies no longer have to worry about early cut-off times. They can make and collect last-minute payments for goods and services, instead of having to schedule them on batch runs, allowing them to optimise their working capital. They can also benefit from real-time reporting, enabled by open-banking APIs, which can give them an up-to-date view of their payments data instead of the MT940 end-of-day reporting that they relied on in the past.

    The combination of faster payments and APIs is also enabling treasuries to undertake cash allocation and reconciliation in real time. This is because software vendors are developing treasury management systems (TMSs) that can recognise when a payment has come in, automatically reconcile the payment against the company’s bank account, and allocate the cash appropriately. These TMSs make use of APIs, which use real-time connectivity to draw in data from banking systems and other information sources.  

    US: Consumer payments 

    Cash is still the most commonly used method of payment in the US. Nevertheless, consumer behaviours are changing in response to the widespread adoption of the smartphone, the rapid growth of online shopping and the development of digital wallets. Younger consumers, in particular, are increasingly willing to load their debit cards into a mobile wallet. Meanwhile, all age groups are making more use of peer-to-peer payments. 

    As yet, the use of contactless cards is low in the US compared with some other developed markets. There is high demand for contactless cards among merchants, however, since these are seen as a way to increase the efficiency of the in-store checkout. Hence consumer take-up of contactless cards is expected to increase as the banking industry invests in marketing to raise awareness of them as a payment method. 

    Many consumer-facing corporates that operate in the US will want to encourage their customers to transition away from cash and cheques and adopt digital payment channels instead. If they are to succeed in this, they must be conscious that security is a priority for consumers of all ages, with people having concerns that their account and personal data could be stolen. US consumers also value rewards for loyalty and a personalised payment experience. 

    Cryptocurrencies are another important payment consideration for corporates that operate in the US. In particular, there is growing interest in stablecoins – currencies that are pegged to other assets such as physical money or precious metals. Today, it may be surprising to discover that only a comparatively small number of Americans has ever purchased a cryptocurrency – 7.95%, according to a study by comparison site Finder^ – but if some cryptocurrencies manage to secure regulatory approval, consumers will expect to spend them in future. 

    Europe: SEPA

    The Single Euro Payments Area (SEPA) is a major driver behind the adoption of digital payments in Europe. SEPA harmonises the processes for cashless euro payments across Europe, providing a set of basic conditions that apply when consumers and businesses make card payments, credit transfers and direct debit payments. With SEPA, it is as easy for consumers and businesses to make cross-border electronic payments in euros as it would be for them to make domestic payments.

    SEPA Instant Credit Transfer (SCT Inst), launched in 2017, has been a particularly important development for both businesses and consumers. Available 24 hours a day, 7 days a week, SCT Inst enables cross-border real-time payments of up to €15,000 for SEPA countries and territories. What is particularly significant for corporates is that the upper limit for SCT Inst is set to increase to €100,000 from 1 July 2020. This means that corporate treasurers will be able to use the scheme for a higher proportion of their payments. 

    In future, SCT Inst could also enable corporates to establish request-to-pay services for customers who live in countries where take-up of direct debits is currently low. 

    Asia: Digital payments in India

    India has a fast-growing economy and is on track to be the world’s most populous country by 2024, according to the United Nations. That’s why it is significant that India has been transitioning to digital payments over the past couple of years. Data from the Reserve Bank of India shows a 58.8% increase in the volume of digital transactions over FY2018-19, with growth of 19.5% in value terms. 

    Much of the credit for this transition should go to the Unified Payments Interface (UPI), the instant real-time payment system developed by National Payments Corporation of India. Since UPI was launched in mid 2016, it has enjoyed a mammoth rise in acceptance. Indeed, there were nearly 750 million UPI-based payments in June 2019 alone, according to data published by the Reserve Bank of India. 

    Nevertheless, while there is a growing trend towards cashless transactions, and action is being taken to provide cheap, convenient and secure infrastructure for digital payments, cash remains India’s primary mode of disbursement. A ‘less-cash economy’ is still some time away.

    How Barclays can help

    Barclays has extensive knowledge of digital payments and offers a variety of channels through which clients can send and receive electronic funds. We are innovating constantly to improve the payment services available to our clients and we offer a wide range of online and mobile solutions, as well as solutions that are suited to ecommerce. We also offer iPortal, our online portal that enables our clients to conveniently access our suite of corporate banking products and services, including payments and collections. 

    To find out more about what developments in digital payments globally could mean for your business, speak to your relationship director. 

    Andres Baltar
    Head of ICB Europe

    Alexander Harrison
    Head of Corporate Banking, Asia Pacific and Middle East

    Keith Mackie
    Head of International Corporate Banking, Americas

    Simon Ollerenshaw
    Managing Director, Head of UK & Swiss Multinational Coverage

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